PRICE
The price paid for a bond is based upon the general level of interest rates at the time of purchase. When a security is issued, the coupon rate will be reflective of the current interest rate environment, and the price will typically be at or close to par (100.00% of face value). After the bond is issued, if interest rates go down, the price of the bond will go up (to more than 100.00% of face value). This happens because a new bond issued in the lower interest rate environment would have a lower coupon rate, and trade at or close to par. The investor selling the older bond (with a higher coupon rate) would demand a higher price (a “premium”). for the bond (it has a higher coupon, pays more interest and, therefore is more valuable). Conversely, after a bond is issued, if interest rates go up, the price for the security will decline (to a “discount”) because its coupon will be less valuable. Of course, no investor is obligated to sell a bond prior to maturity regardless of whether interest rates rise or fall.
YIELD
The price paid by the buyer will equate to an “effective yield” to the bond’s stated maturity. The effective yield to maturity is calculated using a mathematical combination of the price paid, the coupon interest rate and the remaining term to maturity.
How To Sell Bonds
The price paid for a bond is based upon the general level of interest rates at the time of purchase. When a security is issued, the coupon rate will be reflective of the current interest rate environment, and the price will typically be at or close to par (100.00% of face value). After the bond is issued, if interest rates go down, the price of the bond will go up (to more than 100.00% of face value). This happens because a new bond issued in the lower interest rate environment would have a lower coupon rate, and trade at or close to par. The investor selling the older bond (with a higher coupon rate) would demand a higher price (a “premium”). for the bond (it has a higher coupon, pays more interest and, therefore is more valuable). Conversely, after a bond is issued, if interest rates go up, the price for the security will decline (to a “discount”) because its coupon will be less valuable. Of course, no investor is obligated to sell a bond prior to maturity regardless of whether interest rates rise or fall.
YIELD
The price paid by the buyer will equate to an “effective yield” to the bond’s stated maturity. The effective yield to maturity is calculated using a mathematical combination of the price paid, the coupon interest rate and the remaining term to maturity.
How To Sell Bonds
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